Boris and Rishi need a strategy for growth

A week after surviving a vote of confidence in his leadership, Boris Johnson is in full swing with a series of policy statements and initiatives. Legislation flouting parts of the Northern Ireland Protocol was unveiled yesterday along with the government’s “diet strategy” to tackle obesity. Last week the Prime Minister outlined a series of housing promises including a purchase rights program and a review of mortgage markets.

This somewhat frenzied activity is said to be an attempt to bounce back after 148 Conservative MPs voted to remove him. Two and a half years after winning a general election with an 80-seat majority, Mr Johnson is struggling to define the purpose and direction of his government.

This applies in particular to the economy. The latest April GDP growth figure was shocking, not least because few policymakers, including the Bank of England, saw it coming. ONS data showed a 0.3 percent drop in production, pointing to an impending recession.

We’re not there yet and all is not bleak. Measures to alleviate the cost of living crisis are not yet having an effect and the labor market remains favorable for job seekers. One curiosity, however, is that more than five million people are claiming unemployment benefits as shortages hit many sectors. Add to that the millions still in work who have rarely been in the office since the pandemic, with unknown impacts on productivity.

We are in a uniquely difficult economic situation, with official employment numbers pointing to an uplift that is essentially a mirage. The ONS figures are particularly alarming as they point to a contraction in all sectors before the rise in energy prices and therefore cannot be traced back to it.

No growth, high inflation and high unemployment are signs of stagflation of the kind the country endured in the 1970s, before the Thatcher governments took tough and painful decisions to get the economy moving again. The cost was significant, but because the policy was based on a thorough analysis of the failures, it eventually bore fruit.

The concern today is that there is no strategy for economic growth and the country is headed for a downturn from which it will struggle for years to emerge. It is conceivable that we will find ourselves in a recession by the next budget, with a winter of high prices and strikes just around the corner.

That tendency isn’t helped by the apparent friction between the PM and Chancellor Rishi Sunak, with the former keen to “throw an arm around the nation” while the latter resists pressure for more spending from No10. Mr Johnson has told MPs that he is keen on cutting taxes to boost growth but it is claimed he is being stymied by the Chancellor.

A Treasury source told the Telegraph, “Rishi will not make reckless, unfunded tax cuts just to bail out a prime minister who is weakened in his party.” However, tax cuts could be funded if less spending were made.

Mr Johnson was reportedly planning a key speech on the economy this week but it has been postponed, suggesting disagreements in Cabinet over how to proceed. He said on LBC radio this morning that raising the NIC threshold next month would represent a million-dollar tax cut, but indicated there would be no further cuts until inflation came down. However, he has to admit that putting them up in the first place was a mistake. If the government is throwing money at people to mitigate the effects of high energy prices and other costs, why not just let them keep more to themselves?

In addition, a large proportion of energy costs are due to environmental taxes, which could be eliminated or suspended. Consumer confidence has fallen to record lows and interest rates are rising and could do so again on Thursday. The Chancellor was supposed to be committed to economic growth, but Mr Sunak’s decision to increase taxes was a mistake with profound political and economic consequences.

Mr Johnson’s allies insist he wants to reverse that policy but is being blocked by the Treasury Department. If that is the case, remedial action is in the hands of the Prime Minister. Boris and Rishi need a strategy for growth

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